Value Added Tax (VAT) was introduced in the Kingdom of Saudi Arabia (KSA) in January 2018. At the time of introduction, the basic rate of VAT applied on taxable supplies and imports in KSA was 5%. A decree was issued dated 11th May 2020 clarifying the change in VAT rates and transitional rules for VAT rate change which will decide the tax liability given taxable supplies and some other special cases.
The basic VAT rate was 5% when VAT was introduced in 2018.
Zakat, Tax and Customs Authority (ZATCA) revised the VAT rate to 15% w.e.f 1st July 2020 to counter the economic and financial impact of the COVID pandemic.
To qualify supply for zero rates, the supplier should be registered for VAT in KSA. Also, goods and services should be supplied in lieu of any monetary or non-monetary consideration.
Below is the list of supplies on which 0% VAT is charged:
Exempt supplies fall outside the scope of KSA VAT law and do not attract VAT. Businesses dealing with exempt supplies neither collect VAT on sales nor claim input VAT paid on purchases. Below are the exempted supplies under KSA VAT:
Due to the revision of tax rates in KSA, there were high chances of ambiguity regarding accurate tax rates for the particular contracts and tax invoices issued before 11th May and completed in the transitional period or after completion. Therefore, ZATCA issued transitional provisions to avoid any misuse of dates relating to the calculation of tax.
Below are some special cases mentioned in transitional provisions:
Cut off date | Applicable VAT rate |
Before 11th May 2020 | 5% VAT will apply until the date of: – Expiration, – Renewal, – 30th June 2021 (which is earlier) |
Between 11th May 2020 and 30th June 2020 | For supplies made before 1st July 2020 – 5% VAT For supplies made on or after 1st July 2020 – 15% VAT |
Cut off date | Applicable VAT rate |
Before 11th May 2020 | 5% rate will apply until the date of: – Expiration, – Renewal, – 30th June 2021 (whichever is earlier) |
Between 11th May 2020 and 30th June 2020 | For supplies made before 1st July 2020 – 5% VAT For supplies made on or after 1st July 2020 – 15% VAT |
Contracts signed before 11th May 2020 and supply will continue on or after 1st July 2020 | 5% rate will apply until the date of: – Expiration, – Renewal, – 30th June 2021 (whichever is earlier) |
Cut off date | Applicable VAT rate |
Tax invoice issued before 11th May 2020 | If actual supplies take place between 1st July 2020 and June 2021- 5% rate |
Tax invoice issued between 11th May 2020 and 30th June 2020 | Supply made on or before 30th June 2020- 5% rate Supplies taking place on or after 1st July 2020 – 15% rate |
For periodic tax invoices issued on continuous supplies issued before 11th May 2020 | Part of supply completed before 1st July 2020 – 5% rate Supply taking place after 1st July 2020- 15% rate |
All goods and services except exempt supplies and zero-rated supplies are subject to 15% VAT.
Goods imported into the KSA on or after 1st July 2020 are subject to15% rate. However, the rate was 5% before the amendment of VAT rates in KSA.
Exports of goods and services outside the council territory are deemed zero-rated supplies, i.e. tax is charged at a 0% rate. Also, the business is allowed to recover the associated input VAT by provisions of VAT.
The current VAT rate in Saudi Arabia is 15%.
When ZATCA introduced VAT in Saudi, the VAT rate was 5%. However, the government increased the VAT rate to 15% w.e.f. 1st July 2020 to combat the financial impact of the COVID pandemic.
Gold with a 99% purity level falls under zero-rated supply, whereas gold with a lower purity level attracts the standard rate of 15%.
ZATCA clarified that VAT is an indirect tax imposed on the supply of goods and services only. Hence, VAT does not apply to salaries, wages and bonuses.